BtoB

Multinationals feast on b-to-b shops

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B-to-b agencies look like tasty morsels to the likes of True North Communications Inc. and the Interpublic Group of Cos., and lately these multinational holding companies have been gobbling them up.

Earlier this month, True North acquired Howard, Merrell & Partners, whose b-to-b accounts include SAS Institute Inc. and Micell Technologies Inc. Late last year, True North also acquired Stein Rogan + Partners.

Among this year’s prominent b-to-b agency acquisitions: Cordiant Communications Group plc purchased Donino, White and Partners, and WPP Group’s J. Walter Thompson purchased Imagio Technology Advertising and Public Relations.

The trend is leaving some agencies still on the sidelines feeling a bit left out. ‘‘Being acquired by someone is one of the ways we get to fulfill our grandest vision about what we can be,’’ said Rick Segal, chairman-CEO of HSR Business-to-Business Inc. ‘‘Now, I’m not out there peddling HSR, but it is one way we can find more gas to put in our tank.’’ He added that HSR B2B was talking informally with one of the multinationals about being acquired.

Not everybody in the agency business, however, is so keen on acquisitions. Pete Kovac, president-CEO ofNKH&W Inc., cherishes his agency’s independence. ‘‘We don’t have to report to a shareholder body,’’ he said. ‘‘We can make independent decisions. We can make those decisions rapidly.’’

While disagreements exist over the wisdom of multinationals acquiring b-to-b agencies, industry observers agree that the trend shows no signs of abating. Of the six independent b-to-b agencies that won agency of the year from BtoB’s predecessor Business Marketing between 1991 and 1999, three Anderson & Lembke, Goldberg Moser O’Neill, and Hill, Holliday, Connors, Cosmopulos have since been sold to multinationals.

‘‘This is obviously a long-term trend for major agencies to buy or invest in specialty agencies as a way to build skill sets,’’ said Tony Miller, exec VP-regional manager, McCann-Erickson North America. ‘‘Every major franchise is involved in this, and I think b-to-b has been a natural extension of that.’’

Screaming for consolidation

While larger agencies such as McCann, which counts Microsoft Corp. among its clients, and Ogilvy & Mather Worldwide, which has the IBM Corp. business, control larger b-to-b accounts, a significant portion of b-to-b spending still goes through thousands of smaller specialty agencies. ‘‘B-to-b is a field that is screaming for consolidation, because it is so fragmented,’’ Segal said.

Gene Bartley, chairman-CEO of True North’s Bozell Group, said acquiring b-to-b agencies is not exactly new. He noted Bozell purchased Poppe Tyson, which originally made its name as a b-to-b shop and is now part of Modem Media, in the 1970s.

Most agree, however, that the trend has gathered speed in the past few years, as multinationals wake up to the power of b-to-b marketing. ‘‘I think it’s one area of the business where mainstream agencies haven’t paid as much attention to as we should have,’’ Miller said.

The power of electronic commerce has helped open their eyes. ‘‘The Internet has really helped to support the growth, going back three or four years,’’ said Abe Jones, managing director of AdMedia Partners Inc., a New York investment bank.

B-to-b agencies are willing to sell for a number of reasons. For Mac Merrell, president-CEO of Raleigh, N.C.-based Howard, Merrell & Partners, the sale was a way to gain an international presence and better serve clients. ‘‘We also had need for global reach, and even though we had ‘stick-built’ two worldwide networks in recent years, having global capabilities already in place is a big plus for a growing number of clients.’’

Tom Stein, president of Stein Rogan, said being part of True North has helped save clients money on media schedules. ‘‘We tap into an organization that buys billions of dollars of media, not millions of dollars of media,’’ he said. ‘‘We get tremendous media clout and that kind of clout has a direct benefit for our clients.’’

Being part of True North has helped Stein Rogan win new business. Stein said Stein Rogan’s agility as a small agency combined with the backing of a multinational has been attractive to potential clients. Stein Rogan recently won the account of an e-CRM company called Youcentric Inc., which will launch a new campaign shortly. ‘‘We would not have received it if we were not part of True North,’’ Stein said.

The backing of a partner can also help an agency grow. Colle & McVoy was acquired in 1999 by Maxxcom Inc., a Toronto-based holding company. With Maxxcom’s resources, Colle & McVoy has executed five acquisitions, the only ones in its history.

In addition to building the business, being acquired provides an exit strategy for the agency principals. It’s difficult to extract value from advertising agencies, built as they are on relationships and other intangibles. Small agencies find it nearly impossible to go public, so selling is one of the few options for gaining real value from sweat equity.

At NKH&W, Kovac acknowledges that selling to a multinational makes sense financially, but he remains resolutely opposed to the idea. ‘‘I don’t like bureaucracy,’’ he said. He is considering an internal acquisition of NKH&W by a select group of employees.

Multinational benefits

These deals also appear to benefit multinationals. Because the multinational holding companies are publicly traded, growth is a necessity. Acquisitions of b-to-b and other specialty agencies are one way to mollify Wall Street.

The agency business is an odd one, because so many client services are farmed out to suppliers, whether it’s a media outlet, commercial director or printer. Buying specialty agencies whether in health care, direct mail or b-to-b is a method of capturing profits that at one time would go outside the agency. ‘‘It’s nice to keep it in the family,’’ said Stever Aubrey, exec VP-general manager of Hill, Holliday in Boston.

By acquiring b-to-b agencies, multinationals on occasion can buy clients. In purchasing Andersen & Lembke, Interpublic and McCann-Erickson nabbed a coveted quarry: Microsoft’s Windows business. In 1995, the multinational acquired A&L, which handled the b-to-b side of Microsoft’s business. Eventually, by working closely with its sister agency, McCann positioned itself to win the bulk of the Microsoft account in 1999. Interpublic merged McCann’s and A&L’s San Francisco offices to help seal the deal.

‘‘By merging the two businesses, we actually get a combination of strengths,’’ Miller said. ‘‘We have the traditional mainstream strengths of McCann, and we maintain a specialty in the b-to-b area. That has been something we’ve demonstrated in the Microsoft relationship.’’

Diminished brands

The McCann-A&L saga also demonstrates the downside to acquisitions: Even strong b-to-b brands such as A&L can be subsumed into larger, consumer agency brands.

More recently, Goldberg Moser O’Neill was merged into Hill, Holliday and its brand reduced to three letters: GMO. It is now GMO/Hill, Holliday in San Francisco.

Aubrey defends the move, arguing it made solid business sense. ‘‘We have a presence in financial services, and one of the reasons GMO became part of Hill, Holliday was to complement us,’’ he explained. ‘‘It gave us a West Coast presence in technology.’’

Acquisitions can also erode brands in more subtle ways: by forcing agencies to focus more on the bottom line and by altering company cultures. ‘‘I think anybody who gets into a merger discussion realizes that things never stay the same,’’ Jones said. ‘‘You’re going to have a boss for the first time in a number of years. There are processes and procedures they must follow. There is a quid pro quo.’’

Kovac believes this quid pro quo can ruin an agency. ‘‘The agency business is the marriage of art and science,’’ he said. ‘‘It’s an emotional business. [The multinationals] are looking at it like bean counters from a cash flow perspective.’’

Stein, however, has no regrets about selling and said he has no fears about the Stein Rogan brand evaporating in the wake of its acquisition by True North. ‘‘We have big plans for the future,’’ he said. ‘‘This will help us achieve our goals.’’

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